Can a Britishness focus put Burberry shares back in vogue?

The Burberry share price has climbed 12.5% in the past month through to 8 June, helped by strong revenue growth and plans to invest in its stores, as well as news of a share buyback scheme. Analysts are hopeful that its emphasis on Britishness will draw in customers.

Luxury goods player Burberry [BRBY.L] widened its margins in its fiscal year 2022 and is hoping plans to invest in its stores and customer experience will pay off.

The retailer, famed for its trenchcoats, reported a 23% rise in revenue for the 12 months to 2 April to £2.8bn. Adjusted operating profit rose a record 38% to £523m and this led to a margin improvement of 18.5%, up from 16.9% in 2021. This has put the group on track to meet its medium-term target of 20%.

The company did raise some negative headwinds, however. Burberry relies on China’s luxury market more than its competitors and growth in the country slowed in the fourth quarter as a result of rising Covid-19 cases at the start of 2022. Despite the challenging trading environment, Burberry CFO Julie Brown downplayed the situation at its earnings call on 18 May.

“We are expecting a rebound in China once restrictions are lifted and we will continue to invest ahead of the recovery, which is likely to lead to a more pronounced phasing in group profits between H1 and H2 [in 2023] compared to a typical year.” She said the group’s outlook for fiscal 2023 was for total sales to grow by “high single digits”.

Investing in the British experience

With the next fiscal year in full swing, the luxury retailer has a big plan to boost its retail network. It was one of three top priorities identified by Jonathan Akeroyd when he took up the position of CEO in March. The other two were brand elevation and production innovation.

On the most recent earnings call, Akeroyd and Brown explained that the company will continue to expand its rollout of a new store concept that “represents all that is new Burberry; authentic, bold, elevated with creativity at its core”. Some 47 redesigned stores, including its new Paris flagship at Rue Saint Honoré, opened in fiscal 2022. A further 65 are expected to be converted by the end of fiscal 2023.

“The majority of stores are performing above plan, attracting new elite clientele and delivering higher [average unit retail] than the prior store portfolio,” Brown said. New and refurbished stores are forecasted to account for more than half of sales in 2023.

“The concept will transform how our customers experience the brand and products in a uniquely British luxury setting with our leather products in a much more prominent position,” she added.

In an interview with Vogue Business, Akeroyd said he sees an opportunity for Burberry to highlight its Britishness while being able to maintain a competitive edge.

This impressed Barclays luxury analyst Carole Madjo. The brand has moved away from its British DNA in recent years and this could be partly to blame for any weakness, she wrote in a research note seen by the fashion publication. “The last collection had a bigger focus on Britishness and heritage, which we think is a good sign,” Madjo added.

Madjo boosted her target for the Burberry share price from 1,960p to 2,070p at the end of May, which implies an upside of 17% from the 8 June closing price of 1,715p.

Buyback boosts Burberry share price

The Burberry share price had a difficult first four months and is down 5.6% year-to-date as of 8 June. It’s started to show signs of recovery, however, and is up 12.5% in the past month.

The recent gains have been partly driven by the announcement of a final dividend of 35.4p, taking the total dividend for the year to 47p, an increase of 11% on that paid out in 2021. The luxury retailer also plans to buy back £400m of shares.

Hargreaves Lansdown analysts noted: “The group’s balance sheet is in reasonable health, with net debt well below the target range of 0.5–1.0 times underlying cash profits (EBITDA). That not only provides the fuel for store and product investment, but means the group is comfortable enough to restart shareholder returns.”

Burberry has one ‘buy’ and five ‘hold’ ratings in total, according to MarketBeat, with a consensus price target of 2,119.17p, representing an upside of 23.5% from its 8 June closing price.